Kroger’s E-Commerce Buy Puts Grocery Chain Up Against Google

Kroger Co. is betting that its decision to buy online vitamin seller Vitacost.com Inc. will boost its technology expertise and enhance its e-commerce and home-delivery offerings. But the grocery store chain still has to prove it can successfully integrate and leverage its new technology assets as it goes up against home-delivery programs from the likes of Amazon.com Inc. and Google Inc.

Kroger “now has companies like Google competing against them because I can order the same stuff,” Forrester Research Inc. analyst Adam Silverman told CIO Journal. Along with its more traditional grocery store competitors, the acquisition puts Kroger “square in the crosshairs of Google as well.” Google Shopping Express, for example, is a same-day delivery service that lets people order and pay online for items from physical stores like Costco Wholesale Corp., Target Corp. and Walgreen Co., then have them delivered to their home within hours.

Many grocery stores and other traditional retailers are looking to digital initiatives to cope with changing customer expectations and the rise of online stores. Kroger is the nation’s biggest pure-play grocery chain by sales and the second largest food retailer after Wal-Mart Stores Inc., the Journal reported, and has outperformed other supermarkets in part by lowering prices and expanding its store-brand products. Moving some of those higher-margin products to the Web quickly could help Kroger see some incremental improvements right away, Mr. Silverman said.

The $280 million Vitacost deal “accelerates where we are by a few years, much faster than if we went and tried to build it on our own,” Kroger CEO Rodney McMullen told the Journal. Indeed, the acquisition gives Kroger an opportunity to experiment with new methods and learn alongside some of the bigger players. But there’s a strong chance it will also require significant changes to operations, potentially affecting its supply chain strategy and the way associates work on a daily basis.

Vitacost has also experienced its fourth-straight year operating at a loss, another potential obstacle. “Bolting on an e-commerce platform makes a lot of sense,” Mr. Silverman said. “But plugging that into a regular grocery store is going to be a challenge.” It may be an opportunity for Kroger CIO Chris Hjelm and other IT staff to leverage their expertise to help ensure the integration goes smoothly.